Conversation

SBF
@SBF_FTX
Replying to
@SBF_FTX
4) One cool thing about Compound is the interest rate calculation--it looks at the supply and demand of each coin and algorithmically determines an interest rate. So if lots of people want to borrow USDC and no one wants to lend, rates will increase until that evens out.
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SBF
@SBF_FTX
5) The really cool things, though, are the cTokens. Rather than just paying you interest directly, Compound tokenizes it. What does that mean?
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SBF
@SBF_FTX
6) Say you deposit 5 USDC and lend it out for 1%/year. Compound takes your USDC and in return gives you cUSDC, $1:$1. So if cUSDC is worth $0.25, it'll give you 20 cUSDC for you 5 USDC. All cUSDC is fungible--you can send it to a friend, who can then redeem it back for 5 USDC.
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SBF
@SBF_FTX
7) So cUSDC is basically an IOU for 0.25 USDC, which Compound gives you in return for the USDC you're loaning out. Now, when Compound goes to pay interest to the USDC lenders, it doesn't send them USDC. Instead, it just increases the number of USDC you get per cUSDC.
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SBF
@SBF_FTX
8) Since all USDC lenders are owed the same % interest, Compound can just increase the value of the cUSDC they all have. And so if you earned 10% total interest, when you go to redeem your 20 cUSDC, you get 5.5 USDC back instead of your original 5.
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SBF
@SBF_FTX
9) So cUSDC is basically just an every-increasing number of USDC, growing at the interest rate on Compound. I'ts kinda like a coin that can only go up! (Unless there is a liquidation failure/hack/etc. on the platform, in which case it can go down.)
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SBF
@SBF_FTX
10) Here's the kicker--this means that you can effectively lend USDC on Compound without ever touching the platform! All you have to do is buy cUSDC with your USDC, and it'll grow at the Compound interest rate. It's a tokenized DeFi interest rate, which is really cool!
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SBF
@SBF_FTX
12) We'll even allow cUSDT to be collateral for futures on FTX and spot margin on FTX US, so you can earn interest on your USDT collateral while using it to trade other products.
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Baptiste Vauthey
@thabaptiser
Replying to
@SBF_FTX
and
@SBF_Alameda
By using cUSDT (which is vulnerable to liquidation issues in the case of a large market crash) as collateral for futures (which are vulnerable to the same issues, in the same scenario), are you not increasing the risk that something goes wrong during a huge market move?
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